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Tuesday, March 14, 2000

Estate lost
$56 million in

Kamehameha Schools has set
aside another $28 million to cover
other potential losses

By Rick Daysog


The Kamehameha Schools' high-stakes gambles on a Canadian developer and a mainland China venture has cost the charitable trust $56 million.

Since July, the $6 billion trust has written off about $50 million from its investment in Toronto-based Cadillac Fairview Corp. and has taken another $6 million loss from its investment in Unison Pacific Investments Ltd., according to a person familiar with the trust's operations.

The trust also has set aside another $28 million as reserves to cover other troubled investments, according to the source, who did not give details on those investments.

The write-offs -- which represent about half of the annual budget for the Kamehameha Schools' educational programs for Hawaiian students -- come as the estate's overall finances are in the best shape of its 115-year history.

But they underscore complaints that the trust's former board mismanaged estate funds and took ill-advised bets on risky ventures.

"It's scandalous," said Randall Roth, University of Hawaii law professor and co-author of the 1997 "Broken Trust" article that criticized the former Kamehameha Schools trustees' stewardship of the trust.

"If they had taken a few billion dollars and put it in an index fund 10 years ago, they would be much better off today than they are with these ad hoc, harebrained, get-rich-quick, relationship-based deals."

A write-off means that the estate considers the investments a total loss. The trust previously set aside loss reserves for its investments in Cadillac Fairview and Unison Pacific.

An estate spokesman had no immediate comment.

The estate's new interim board of trustees, who assumed their posts in May, have announced that the trust will focus more on liquid, institutional-grade investments.

Founded in 1953, Cadillac Fairview is a major owner and developer of office and retail properties in the United States and Canada. In 1987, the Kamehameha Schools joined a group of 39 institutional investors led by the trust's longtime advisor, Chicago-based JMB Realty Corp., in a $2.6 billion leveraged buyout of Cadillac Fairview.

But like many big commercial developers, Cadillac Fairview was forced to restructure during the mainland recession of the early 1990s. While Cadillac Fairview has since recovered, Kamehameha School's investment in the developer was diluted in the restructuring.

Unison Pacific, meanwhile, invests in joint venture and startups in mainland China, including an aluminum factory. The investment is managed by San Francisco-based Unison International Corp., which is headed by C.B. Sung, a former partner of legendary Hawaii financier Chinn Ho.

Ho, who died in 1987, is a longtime business associate of former Kamehameha Schools trustee Matsuo Takabuki, who played an instrumental role in the Unison and Cadillac Fairview investments.

The state attorney general's office has cited the investments in its suit against former trustees Henry Peters, Richard "Dickie" Wong, Oswald Stender, Gerard Jervis and Lokelani Lindsey. The state wants to hold the former board members accountable for any investment losses due to alleged mismanagement and lack of due diligence. The state has listed about two dozen investments, including Cadillac Fairview, in the lawsuit.

The former trustees have denied wrongdoing, saying the trust's overall finances are in good health. During its 1999 fiscal year, the trust reported record revenues of about $469.1 million, up from $334.7 million in the year-earlier period.

Trial is scheduled for September.

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